Singapore, April 27, 2012 -- The following release represents Moody's Investors Service's summary credit
opinion on Syndicate Bank and includes certain regulatory disclosures
regarding its ratings. This release does not constitute any change
in Moody's ratings or rating rationale for Syndicate Bank and its affiliates.
Moody's current ratings on Syndicate Bank and its affiliates are:
Senior Unsecured MTN Program (foreign currency) ratings of (P)Baa2
Long Term Bank Deposits (domestic currency) ratings of Baa2
Long Term Bank Deposits (foreign currency) ratings of Baa3
Bank Financial Strength ratings of D+
Subordinate MTN Program (foreign currency) ratings of (P)Baa3
Junior Subordinate MTN Program (foreign currency) ratings of (P)Ba1
Short Term Bank Deposits (domestic currency) ratings of P-2
Short Term Bank Deposits (foreign currency) ratings of P-3
Syndicate Bank, London Branch
Senior Unsecured (foreign currency) ratings of Baa2
Senior Unsecured MTN Program (foreign currency) ratings of (P)Baa2
Subordinate MTN Program (foreign currency) ratings of (P)Baa3
Junior Subordinate MTN Program (foreign currency) ratings of (P)Ba1
RATINGS RATIONALE
Moody's Investors Service has affirmed all Syndicate Bank's local
currency deposit ratings and all its debt ratings. At the same
time, it has revised the outlook on these ratings to negative from
stable. The affected ratings are its Baa2/P-2 local currency
deposits, Baa2 foreign currency senior unsecured debt, (P)Baa2
foreign currency senior unsecured debt program, (P)Baa3 foreign
currency subordinated debt program and (P)Ba1 foreign currency junior
subordinated debt program. The outlook on the foreign currency
deposit rating of Baa3/P-3 is stable, as this rating has
been constrained by the sovereign ceiling for foreign currency deposits.
The change in the outlook reflects a negative outlook being assigned to
the bank financial strength rating (BFSR), of D+, mapping
to a baseline credit assessment (BCA) of ba1.
The revision in the rating outlook factors in the increasingly challenging
operating environment for Indian banks. As Syndicate Bank has a
weaker franchise than other Indian banks rated Baa2 by Moody's,
its rating is more vulnerable to potential deterioration in financial
strength in the current environment. We believe the bank's
franchise is weaker than other Indian banks rated Baa2 and is unlikely
to significantly change over the next few quarters.
Asset quality indicators are deteriorating. Its gross NPL ratio
reached 2.38% at end-September 2011 (2.24%
at end-September 2010). Over the next few quarters,
given the trend in increasing levels of gross NPLs and net NPLs,
and expected stress in the restructured loan portfolio, Moody's
expects that Syndicate Bank could report a gross NPL ratio in excess of
2.5% and net NPLs to net advances of over 1.25%.
Given the local economic slowdown, which is expected to impact the
financial position and repayment capacity of borrowers, asset quality
indicators could further deteriorate.
During the six-month period ending September 2011, net interest
margins declined to 3.26% (3.32% as of end-September
2010), driven by an increase in costs of funds. Over the
next few quarters, Moody's expects the costs of funds to continue
rising as maturing deposits are re-priced at a higher interest
rate, increasing pressure on net interest margins. Apart
from pressures on net interest margins, Syndicate Bank compares
unfavorably to other Baa2-rated Indian banks in terms of its low
fee income share -- at 8% of total income --
due to its franchise as a mid-sized public sector bank.
Syndicate's global local currency rating of Baa2/P-2 continues
to receive a two-notch uplift from its BCA. The rating uplift
factors in the very high likelihood of support from the Indian government
in the event of a systemic crisis. The Indian government has supported
public-sector banks by infusing equity to increase core Tier 1
capital and maintaining its shareholding to a minimum of 58%.
Rating Outlook
The rating outlook is negative.
What Could Change the Rating - Up
Given the negative outlook, an upgrade is unlikely during the next
one to two years.
What Could Change the Rating - Down
The bank's ratings could be downgraded if net NPLs increase to over
1.25% of net loans, and/or if there is a decline in
the return on average risk weighted assets below 0.75%.
If Syndicate fails to maintain a core tier I capital ratio of 8%
or above, its ratings would also see downward pressure. Any
decline in the bank's franchise - as seen by a decline in
the market share of deposits or loans to less than 2% --
and a further increase in the proportion of bulk purchased deposits in
its total funding mix would also likely trigger a rating revision.
The methodologies used in these ratings were Bank Financial Strength Ratings:
Global Methodology published in February 2007, Incorporation of
Joint-Default Analysis into Moody's Bank Ratings: Global
Methodology published in March 2012. Please see the Credit Policy
page on www.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
Although these credit ratings have been issued in a non-EU country
which has not been recognized as endorsable at this date, the credit
ratings are deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 30 April
2012. Further information on the EU endorsement status and on the
Moody's office that has issued a particular Credit Rating is available
on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare each of the ratings are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%)
and for (B) further information regarding certain affiliations that may
exist between directors of MCO and rated entities as well as (C) the names
of entities that hold ratings from MIS that have also publicly reported
to the SEC an ownership interest in MCO of more than 5%.
A member of the board of directors of this rated entity may also be a
member of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating
Process page on www.moodys.com for further information on
the meaning of each rating category and the definition of default and
recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history. The date on
which some ratings were first released goes back to a time before Moody's
ratings were fully digitized and accurate data may not be available.
Consequently, Moody's provides a date that it believes is
the most reliable and accurate based on the information that is available
to it. Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has
issued the rating.
Vineet Gupta
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Moody's Disclosures on Credit Rating of Syndicate Bank
